Market Analysis & Highest and Best Use Flashcards

In a highest and best use analysis, which test must be satisfied FIRST before the others are applied?

Answer: Legally permissible

Legal permissibility is evaluated first because uses that violate zoning, deed restrictions, or regulations are eliminated before physical, financial, or productivity tests are applied.

Which type of market analysis examines supply and demand conditions for a specific property type in a defined geographic area?

Answer: Segmented market analysis

Segmented market analysis focuses on a specific submarket defined by property type and geography, providing more precise supply/demand data relevant to the subject.

A property's current use is a non-conforming industrial facility in an area rezoned for residential. What is the most likely highest and best use conclusion?

Answer: Demolition and redevelopment as residential when economically justified

A legal non-conforming use may continue but cannot expand; when the land value as residential exceeds the value of the existing use plus demolition costs, redevelopment becomes HBU.

The concept of 'surplus land' in highest and best use analysis refers to land that:

Answer: Exceeds what is needed for the current or probable future use and may be valued separately

Surplus land is excess acreage beyond what is needed to support the property's highest and best use and can often be sold separately, warranting separate valuation.

Market rent differs from contract rent in that market rent represents:

Answer: The most probable rent a property would command in the open market as of the appraisal date

Market rent is the competitive rent a property would likely achieve in the open market, which may differ from the contract rent actually being paid under an existing lease.

When analyzing absorption rate for a residential subdivision, an appraiser should primarily consider:

Answer: The rate at which similar units in the local competitive market have been selling over a recent period

Absorption rate analysis for a subject subdivision relies on comparable competitive project sales rates in the local market, not national trends or developer forecasts.

Which market condition would most likely indicate an over-supplied commercial market?

Answer: Increasing vacancy rates and concessions offered to tenants

Rising vacancies and landlord concessions (free rent, tenant improvement allowances) signal that supply exceeds demand in a commercial market.